How does ethics come into loyalty programs
30 October 2023
Susan Walsh

Ethics play a significant role in loyalty program design, shaping how organisations interact with their members and how these programs operate. This article explores the key aspects of ethics in a loyalty program.

Transparency

Loyalty programs should provide clear and transparent information to members about how the program works, including earning and redeeming rewards, data collection, and any associated costs or risks. Clear disclosure helps members make informed decisions.

Honesty is key to communication in marketing. It is important to ensure not to engage in deceptive or misleading practices. Members should know what to expect and not be misled.

Data privacy

Loyalty programs often collect member data. Ethical considerations include:

  • Informed consent: Need to ensure that clear and informed consent is gathered from members before collecting their personal data. Members should be aware of what data is being collected, how it will be used, and whether it will be shared with third parties.
  • Data minimisation: Collect only the data necessary for the operation of the loyalty program. Avoid collecting excessive or irrelevant information about members.
  • Data security: Take all appropriate measures to protect member data from breaches and unauthorised access. This includes encryption, secure storage, and regular security audits.
  • Data usage: Use member data solely for the purposes specified at the time of collection. Do not use the data for unrelated marketing or other activities without explicit consent.
  • Data sharing: Ethical loyalty programs do not sell or share member data with third parties without clear consent. When data is shared, it should be for legitimate purposes and in compliance with privacy regulations.
  • Data retention: Have established and clear data retention policies. Member data is not kept longer than necessary, and when it’s no longer needed, it’s securely deleted. Some industry specify the length of time.
  • Accountability: Having mechanisms in place to hold themselves accountable for data privacy. This includes designating a Data Protection Officer and conducting regular privacy impact assessments. Adhere to relevant data privacy regulations, such as GDPR in Europe or CCPA in California, and ensure that their data practices align with legal requirements.
  • Member control: Allow members to access, correct, or delete their data. Members should have the ability to manage their data preferences.

Fairness

All members should be treated fairly and avoid discriminatory practices. There should be equal opportunities for all members to benefit from the program. Discrimination based on factors like race, gender, or socioeconomic status is considered unethical. Loyalty programs should not discriminate against certain member segments. For example, giving preferential treatment to high-value members while neglecting others can be perceived as unfair and unethical.

Within the terms and conditions (rules and practices) members should be fully informed about how the program works, including earning and redeeming rewards, any associated costs, and data collection practices.

Ethical organisations provide avenues for members to appeal decisions, correct errors, or voice concerns.

Honesty

Marketing and communication should be truthful and not misleading. Members should know what they can expect from the program. The program information provided to members should provide accurate and transparent information about the program’s benefits, limitations, and terms and conditions. This includes clearly stating how members can earn and redeem rewards, any associated costs, and potential restrictions.

Avoiding deceptive marketing tactics, such as misleading advertisements. Ethical programs should not use misleading language or visuals to lure members. Use clear and simple language that members will easily understand.

Honesty extends to disclosing any hidden or unexpected costs associated with the program. Members should not be surprised by additional charges or fees.

Conflicts of interest

Organisations should manage and disclose any conflicts of interest that might compromise the program’s fairness or transparency. There should be fair treatment to all members and do not favour specific groups or individuals. Conflicts of interest can occur if certain members receive preferential treatment.

In some cases, loyalty programs may benefit from independent oversight or audits to ensure that conflicts of interest are properly managed and do not harm members.

Corporate responsibility

Ethical loyalty programs consider their impact on society and the environment. This includes:

  • Sustainable practices toward the environment: Consider the environmental impact of the program and include the ability to reduce waste, energy consumption, and carbon emissions.
  • Responsible sourcing: Ensure that the products and services offered through the program are sourced responsibly. This includes considerations like fair labour practices and avoiding products with unethical supply chains.
  • Social responsibility: The program may be involved in social responsibility initiatives. Activities could include supporting local communities, donations to charitable causes, or taking actions that benefit society. This demonstrates a commitment to giving back and making a positive impact.

Member well-being

Loyalty programs should prioritise the well-being of members, not just profits. Ethical corporate responsibility includes ensuring that the program doesn’t encourage unhealthy or irresponsible behaviour, such as excessive spending or unhealthy consumption.

Member support is accessible and responsive. This ensures that members can seek assistance when they encounter issues or have concerns about the program, enhancing their overall well-being.

Member educational resources are available to help members make the most of the program without overspending or making unhealthy choices. This supports their financial well-being and decision-making.

Compliance

Organisations must comply with relevant laws and regulations, including those related to data protection, consumer rights, and advertising standards.

  • Compliance with data protection regulations, such as GDPR or CCPA, is a fundamental aspect of loyalty program operations. Ethical programs respect member privacy by obtaining proper consent for data collection, handling data securely, and not misusing or selling member data without permission. This not only ensures compliance but also upholds ethical standards.
  • Make it a priority to adhere to all relevant laws and regulations, from consumer protection laws to antitrust regulations. This ensures that the program operates within legal boundaries and aligns with ethical principles.
  • Take cybersecurity seriously, not only to protect member data but also to comply with data security laws. This demonstrates a commitment to both ethics and compliance.

Long-term value

Ethical loyalty programs focus on long-term member relationships rather than short-term gains. This means not compromising member trust for immediate profits.

  • Trust is a valuable asset, that needs to be maintained by being open and honest with their members. When members trust the program and the company behind it, they are more likely to remain loyal over the long term.
  • Member retention: Ethical loyalty programs prioritise the long-term relationship with members rather than quick wins. Retaining existing members is often more cost-effective than acquiring new ones and contributes to long-term value.
  • Word of mouth: Satisfied members who believe in the ethics of a loyalty program are more likely to recommend it to others. Positive word of mouth can lead to long-term growth and value.

Feedback mechanisms

Ethical programs should provide members with the ability to provide feedback and address concerns, demonstrating a commitment to continuous improvement.

  • Member care support: Ensure members have access to effective member support for clarifications, problem resolution, or addressing concerns regarding the program’s honesty. Provide an environment where members feel safe to express their opinions.
  • Anonymity: Provide options for members to provide feedback anonymously if they wish.
  • Use of feedback: Use the member feedback to improve the program, enhance member experiences, and address concerns. Feedback should not be used for manipulative or exploitative purposes. Additionally, ethical programs protect the privacy of member feedback and ensure it’s not shared or used for purposes beyond what was disclosed.

In summary

Ethical programs avoid such biases.

By considering transparency, data privacy, fairness, honesty, conflicts of interest, corporate responsibility, compliance, long-term value and feedback, organisations can develop and maintain loyalty programs that are not only effective but also ethical, ensuring the well-being and trust of their members. By demonstrating ethics, it will contribute to the long-term reputation and sustainability of the brand and loyalty program that loyalty consultants need to consider.

<a href="https://loyaltyrewardco.com/author/susan/" target="_self">Susan Walsh</a>

Susan Walsh

Susan is a Loyalty Director at Loyalty & Reward Co, the leading loyalty consulting firm. Loyalty & Reward Co design, implement, and operate the world’s best loyalty programs for the world’s best brands. Susan has previously worked in product, marketing and business roles at Optus and Virgin Mobile, Catch Connect Mobile, Coles Mobile, Proactiv Skincare and ABC Shops. Susan applies her skills across all aspects of the business, including implementation and operations, loyalty program design, member engagement and digital marketing.

Read our latest expert insights

How to Name Your Loyalty Program

A well-designed loyalty program fosters brand loyalty, drives repeat business, and provides valuable data on customer preferences and behaviors. However, a crucial...

Let's talk

Need to level up your loyalty program? Want to tap into our expertise? Let's talk!